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ATO Refines Tax Compliance Policies

Tuesday, March 9, 2010

Australian Taxation Office (ATO) Commissioner, Michael D'Ascenzo, during a speech to the Tax Institute of Australia's National Convention in Melbourne, has given an indication of how it is refining its approach to compliance so as to deal with globalization, the aftermath of the economic recession and technological advances.

In particular, he confirmed, there is a strengthened resolve from tax administrations around the world to work together in exchanging information to combat tax schemes and tax evasion. In that respect, he said that ATO is involved in the active monitoring and management of risks, particularly thin capitalization and supply chain restructuring, and the validity and commerciality of loss claims, as well as an increased focus on non-resident withholding tax compliance and active participation in a global approach to counter the abusive use of tax havens.

In addition, there will be an increased focus and monitoring of traditional international tax risks arising from transfer pricing, tax rate arbitrage involving the offshore banking unit regime, and the use of complex financial arrangements more generally to avoid Australian tax, together with a strengthening international collaboration in relation to the exchange of data to determine taxpayer compliance in areas such as interest, dividends, unit trust distributions, royalty payments and foreign resident withholding, and aggressive tax planning.

“The current global financial crisis,” he continued, “has increased competitive pressures on small businesses and created an environment where some seek an unfair advantage. The ATO is committed to promoting a level playing field that supports honest businesses while taking firm action against those seeking an unfair advantage by under reporting or not reporting their income.”

Furthermore, he added, “some businesses, particularly small to medium enterprises (SMEs) involved in international markets, have reported difficult trading conditions in the past year. In talking with businesses and their agents, we have found that this tougher environment requires an empathetic approach while at the same time being vigilant to emerging risks.”

Early identification and engagement with businesses experiencing financial stress and the provision of a range of assistance, he said, are examples of the support the ATO provides to SMEs. A range of support tools to help guide and reduce compliance costs for small businesses are available.

He pointed out that another example of this is the small business benchmarks which have been developed from information reported to the ATO to compare business ratios to the financial norms of similar businesses. Businesses reporting outside of business norms may be identified for compliance activity.

Benchmarks have also been prepared in conjunction with trade associations to help tradespeople comply with their tax obligations. By the end of this financial year the ATO will have published over 100 small business benchmarks across sectors such as construction, retail and trade. "While these guide our audit activities, they also help you manage your clients’ tax risk," D'Ascenzo said.

The ATO also continues to engage large businesses in discussions around tax risk and corporate governance. Importantly, we also talk with them and their advisers about where we see their business positioned in the overall tax risk framework. "Where businesses show they want to work with us, we have a range of products and services available to help make compliance easier," D'Ascenzo said.

He confirmed that “companies that consider and effectively plan for controversy before it happens and incorporate tax risk management into their strategic decision-making can reap benefits. They can release significant amounts of cash from the (tax) provision, reduce their tax compliance costs and free up their best people from managing complex tax controversies and litigation. And through the enhancement of their relationships with tax administrations, they can increase their prospects of a lighter tax audit focus in the future.”

In particular, he disclosed that the ATO is dealing with complex issues in relation to the petroleum resource rent tax and expects to issue several draft rulings before May 2010 for public comment.